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What are operating expenses and other fund costs?

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Operating expenses (Opex) are annual asset-based expenses paid out of fund assets by an investment fund as a percentage of the fund’s value, such as the investment advisory fee and marketing and distribution expenses as well as the custodial fee, transfer agency fee, legal fees and accountant’s fees.  The annual fund operating expenses paid by an investment fund as a percentage of the value of the fund comprise:

Total annual fund operating expenses is the total of a fund’s annual operating expenses expressed as a percentage of the fund’s average net assets.

Fund Expenses (Example)
Expense Ratio (Gross) 5/1/2017 0.98%
Expense Ratio (Net) 5/1/2017 0.98%
Distribution and/or service fee (12b-1) Fees 0.25%

The additional fees and costs that can be incurred when purchasing6606ca1a970516606ca1a7059e (ETFs) and closed-end funds include:

  • Brokerage commission – A fee investors pay brokers with each purchase or sale of EFT shares, often structured as a flat fee charged every time the investor trades;
  • Bid-ask spread – The difference between the highest price a broker or dealer is prepared to pay for the purchase of a specified number of shares at any given time (bid) and the lowest price at which a broker or dealer will sell the shares (ask); and
  • Premium (discount) to net asset value – When the shares of an ETF or closed-end fund are trading at a price higher (lower) than their net asset value (NAV) per share in reaction to the market supply and demand.

The fees and expenses of investment funds are disclosed in the fee table of a mutual fund prospectus or ETF summary prospectus.

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